Stocks plunge in another wild day

Remember when the stock market did nothing but go up? As the Velvet Underground song goes, it’s the beginning of a new age.

The Dow Jones Industrial Average took another tumble Thursday, falling by 1,033 points, or 4.2%, to 23,860. It was the second time this week the average shed more than 1,000 points in a day and the fourth time in the last five trading days that it swung by more than 500 points. The average has lost 10% since Jan. 26, meaning we have what market pundits call a “correction.”

As recently as early last week, stock investors were mighty excited by the prospect of tax reform uncorking a gusher of corporate profits. Alas, optimism now shares the room with pessimism that the gusher will get choked off by rates going up. Until this debate is resolved, vast pools of capital will race into and out of the market as investors recalibrate for a more uncertain future.

Meanwhile, in a pretty reliable sign that the bull market has reached its fin de siècle stage, some of Wall Street’s leading firms are starting to get into businesses in which they have no experience.

Goldman Sachs is planning to write loans to enable average folks buy iPhones and other Apple gadgetry. Goldman has lots of experience tending to the financial needs of corporate giants, but it has never been a mass-market lender and its move into phone-lending represents a brave new world. Given how much people need and love their iPhones, it’s inconceivable they would default, right? Maybe, but smaller loans tend to have more problems than big ones. Delinquency rates for credit-card loans are twice as high as for commercial and industrial loans, according to Federal Reserve data.

Second, The Wall Street Journalreports that BlackRock, the index-fund giant with $6 trillion in assets, is planning to start making private-equity investments. PE has been red-hot for years, thanks to ultra-low interest rates enabling firms to borrow cheaply to invest in their companies or pay fat dividends to themselves. But when interest rates are rising, the game doesn’t work as well. BlackRock is saying it plans to wait longer than PE firms do for investments to pay off and wants to replicate Warren Buffett's approach.

Meanwhile, PE firms like Blackstone and KKR are sitting on a record $1 trillion in cash. BlackRock is no rookie, but it picked an interesting time to join a crowded poker table.